Building Your Child’s Tuition Fund: Tips and Guide

“By failing to prepare, you are preparing to fail,” said Benjamin Franklin. In these uncertain times, you have to plan for a secure future for yourself and your children. One way to set your little one/s up for success in life is to provide them with a good education. The sooner you start, the more likely you will end up with a substantial amount to cover most, if not all, of their educational expenses. Let time be your partner in protecting your child’s future by starting out early with these essential dos.

#1. First, determine your regular income

To create a solid plan for building your child’s tuition fund, determine your total household’s monthly income, both active and passive.

An active income, or earned income, is an amount you receive from your “active efforts,” typically from a regular salary as an employee of a company. Mainly regular salary, active income from being employed may also include bonuses, allowances, per diems, and tips.

For the self-employed, income Is classifiable as active income (and taxable) by the IRS if it meets the material participation requirements, such as the minimum number of hours per tax year. 

It would, of course, be great if you have passive income that can complement your active income. The point is that you need to establish a source of living that is substantial, regular, and stable for your financial plan to work. 

#2. Break down where your money goes

Take an additional step forward by spending the time and effort to write down where all your paycheck goes. Putting everything down on paper will help you remember better and think more clearly and strategically. Here are the items that are part of a typical budget list: 

• Home mortgage or rent
• Food
• Health insurance 
• Child care 
• Provision for caring for parents 
• Personal care
• Taxes 
• Transportation and Utilities (internet, water, electricity)
• Emergency Fund (minimum of 9 months’ worth of monthly expenses)
• Debt
• Fixed commitments (to your organization, church, or charitable institution)
• Entertainment
• Social gifts (birthday gifts, wedding presents, etc.)
• Savings
• Investments
• Tuition Fund

#3. Set your tuition fund target

Choose the “how” and “where” of your child’s education

Carefully consider the available educational options. Homeschooling up to a certain age can be a viable economical option, which can likewise provide your child with a high-quality education. 

Were you thinking of an Ivy League school or a local community institution for college? Nothing wrong with either. Yet consider this: 89% of Fortune 100% CEOs graduated from non-Ivy-League schools. Warren Buffet himself, of Berkshire Hathaway fame, “only” attended the University of Nebraska Lincoln. Graduating from a prestigious school is no longer a clear barometer of how far your child will go in life. 

Do the math

Regardless of your choice of an educational institution for your child, it is important to consider inflation. The average tuition increase annually is about 8%. By the time your child reaches college age, ensure that their tuition fund is enough to cover increasing rates as well.

#4. Save up

With your comprehensive budget list, you can already determine how much more you need to realize your educational dreams for your child. Don’t be overwhelmed if there is a large gap between your income and your goals. Any plan is doable if you know what you want, have a clear strategy, and are serious about sticking to your plan.

One thing you can start getting serious about is saving. From your budget list, carefully review what items you can do without or where you can spend less. For instance, you can definitely cut back on coffee shop spending. How about going for non-branded but equally effective personal care products? Can you scale down on your dine-outs and movies and instead schedule date nights at home? Instead of buying expensive store-bought gifts, why not get creative and come up with personally crafted and more thoughtful gifts? For your vacations, consider local travel destinations instead of far-off locations that will require expensive air travel and accommodations. You’d be surprised how a little tweaking here and there in your lifestyle can help you save money substantial enough to get your tuition fund going.

Do you want a more radical way to jumpstart your tuition fund building? Consider cutting back on the square footage of your home. Many couples enjoy a more laid-back lifestyle yet have achieved their educational goals for their children by doing away with expensive mortgages. 

#5. Beef up your portfolio income

Having a portfolio income is a great way to create additional income streams without extra hours. Because you aim to steadily build your child’s tuition fund, you want to rely more on fixed-income securities that are not as aggressive nor volatile as others. Here are some examples: 

• Corporate Bonds
• Guaranteed Investment Certificates (GICs)
• Treasury bills
• Certificates of Deposit (CDs)

Typically, the higher the interest rate is, the longer the maturity period.

Note that government-issued securities are generally more secure. If you want to lend to a company, make sure it is a reputable and well-managed one to diminish its risk of bankruptcy. 

#6. Consider education-specific plans

A 529 plan is an enhanced savings plan for your child’s higher education expenses. It has a higher growth potential than a regular savings plan and is tax-free. In addition, depending on your state’s policies, you can also deduct your 529 contributions from your taxable state income. 

You can choose from several educational insurance plans if you’re located outside of the United States. These vary from endowment-linked plans to equity-linked plans. For a more risk-averse choice, go for the former. Ensure, too, that you are investing in a reputable company that has a proven and lengthy track record of delivering on its commitments.

#7. Look into more income streams

You can, of course, increase the number of income streams you have to further ensure that you meet your tuition fund target for your child.

In addition to your regular active income and portfolio income, you can also do some side hustling. You can open a home bakery, do freelance writing and editing, or sell downloadable content. Or perhaps you have a spare room in your home that you can rent out? The list of possibilities can go on and on. 

Conclusion

If you are truly serious about building your child’s tuition fund, think hard about these tips to get you started on your journey. Then make that crucial first step towards realizing your dreams of a better future for your child.